Amateur Flippers Still Holding The Bag
Long-time readers may remember this article in Fortune about flippers. “Zareh Tahmassebian is lost. Most people don’t get lost driving to their own residence, but then, Tahmassebian has never actually been to these particular homes. There are a few reasons for that: (1) He has no intention of ever moving into them, (2) he lives in Las Vegas, not Phoenix, and (3) he owns six other houses, and a half share of seven more, in the greater Phoenix area. ‘Sometimes it’s hard to keep track,’ he says.”
“The houses he’s inspecting are somewhere inside the Cholla Ranch development that’s being put up by KB Home. Right now he’s in the general area, but lacking specifics. ‘Is that Tempe?’ he asks. ‘I think I have some houses there.’”
“Tahmassebian bought his eight Phoenix houses with 10% down. The houses aren’t exactly throwing off cash: Tahmassebian estimates that he loses $3,500 a month on them, since he doesn’t bother to rent out all 15. ‘If I’m negative on a few, that’s okay,’ he says. ‘I’m in it for the appreciation.’ In seven months, he estimates, the 15 properties have appreciated from $2 million to $3 million.”
Well, Fortune did a follow up. “When we profiled a group of amateur real estate speculators last year, America was awash in a stark, raving frenzy that looked every bit as crazy as dot-com stocks. Today housing indicators seem to point to a cooling market. Which got us wondering: How have our real estate gold-rushers been faring?”
“They’re still in the game. And they’re still hopeful. (At least the ones who would talk to us. One asked if she could call us right back, then stopped answering her phone.) But they have ratcheted down their sky-high expectations. Cheryl Lawyer, whose rehabbed Phoenix homes now sit on the market for months instead of days, has been cautioning friends since last year to forget about flipping. ‘You’ve got to hold your properties a little longer,’ she says.”
“And Zareh Tahmassebian, who owned 15 properties in Phoenix when we first reported his story, has purchased eight more in the Albuquerque area. One concession to a possible bust: He refinanced all his mortgages to a fixed rate and rented out his properties (the rents do not cover his costs). Why not take his profits? ‘It’s still going to appreciate better than the stock market,’ he says. ‘I’m holding on.’”
“The danger, of course, is that Tahmassebian could be left holding the bag.”
Thanks to the readers who provided the tip about this follow-up.
“And Zareh Tahmassebian, who owned 15 properties in Phoenix when we first reported his story, has purchased eight more in the Albuquerque area. One concession to a possible bust: He refinanced all his mortgages to a fixed rate and rented out his properties (the rents do not cover his costs). Why not take his profits? ‘It’s still going to appreciate better than the stock market,’ he says. ‘I’m holding on.’”
“The danger, of course, is that Tahmassebian could be left holding the bag.”
Kenny Rogers’ song: The Gambler…
You’ve got to know when to hold ‘em,
know when to fold ‘em
Know when to walk away, know when to run.
You never count your money when you’re sittin’ at the table.
There’ll be time enough for countin’ when the dealin’s done.
BayQT~
funny
what exactly did this guy do for a real job to be able to piss so much money away ?
Mortgage broker. Big surprise!
Like the captain of the Titanic, Tahmassebian will nobly go down with his ship…
Thanks for the link to the original May 2005 article. That frenzy seems like it was a million years ago, not just ten months ago!
check out middle three letters of Tahmassebian name
That’s interesting.
I have a follow up story. Do you remember the Solera development? It’s the one where investors bought a lot of houses right before Del Webb dropped the price in November 2004. The result was a virtual ghost town, with street after street of empty houses. All those flippers were upside down and stuck holding the bag — or the hot potato, if you’re into mixed metaphors.
Anyway, I’ve been following the Solera story and I visit the neighborhood every couple of months to see how things are going. The last time I was there was a week ago. It is no longer a ghost town. There are still a few houses for sale, but not so many that it looks different from any other neighborhood. Maybe 3 to 5 houses per street, nothing like it was a year ago. The houses that are for sale are still outrageously expensive. I can’t see spending half a million dollars on a 1200 sq ft home in an age restricted community miles from the strip. But what do I know? Somebody has been buying those houses. Most of them now show signs of occupancy — landscaping, cars parked in front, people.
I blamed Solera for the screeching halt of the housing bubble in Las Vegas. Houses were appreciating at about 3% per month until November 2004. Then a bunch of flippers got burned, and everybody else got cautious, and the speculating came to an abrupt halt. Since then, there has been appreciation, but not like it was in 2004. It was about 12% in 2005, and seems to have leveled off to nothing in 2006.
Some people say prices in Las Vegas are coming down, but I’m not seeing it. Rather I am seeing more low-end homes selling (condo conversions), and I am seeing higher end homes not selling if they are over-priced. But I am not really seeing homes getting cheaper. But that may yet come.
Duh.
The Solera tract in Apple Valley Ca. is selling like hotcakes because the developer kept the prices down . I looked at about 20 tracts in that general area last week ,(just to see what the sales people were saying and see what the ave. Sq. Ft price was ).
HW, how’s it looking in the Victor Valley area (AV, Hesp., VV)? Are developers raising prices, holding steady, or discounting?
Looked like they were selling , but holding pattern on price ,giving kickbacks , Average sq. ft. price of 20 tracts
was $1.57 sq ft. A couple big sq footage tracts were as low as $1.37 a sq ft.Giving out free lunch at a number of places but the food was bad ,( tacos,hamburgers ,cookies ).One tract featured immediate move in houses on sale with upgrades included for free ( listed these prices on a chalkboard for easy changing ). A sales person took me to the side and said ,”We have the best prices “. ( Figured it out later they didn’t ) .Another sales person said ” You know the upgrades in the model will come with the house , if you buy today “.
You’re not going to see it for quite awhile yet but when it happens it will blow you away. Keep shoveling s**t against the tide and deluding yourself.
But I fully agree that a major market correction Nation wide will happen . I’m assuming you live in Texas , so I say to you ,
“Watch out the flipper/investor’s are coming your way now.”
Excuse me … maybe txchick57 means you prepare taxes and your 57 ,( rather than you being from Texas ). Im just making assumptions …sorry
I’ve been following the blog for only about a year now, and LVLandlord was and still appears to be a bull, but the tone in comments has definitely changed over the months.
As another poster commented, I still appreciate the counterpoint to keep us all in check.
Thanks again LVLandlord, and best wishes to you!
I was responding to LV Landlord, a guy who refuses to see what’s happening.
Actually, I’ve been reading these bubble blogs for more than two years now. Although LV Landlord is a bull, she’s not a troll, FWIW. When the SHTF in Las Vegas, I remember when she drove out to the Solera development and reported very honestly about what she saw (freaky ghost town). This was in late 2004 on the WSJ blog as “vegas gal.”
Personally, I don’t mind some RE bulls (not trolls), as they keep us bears in check. She’s been following this bubble longer than most bears here, so she can’t be **that** bullish, in reality.
LV landlord, thanks for all your reporting! If (hopefully when) we all get together to celebrate the end of the housing bubble, I’ll buy you drinks.
Take care!
TexasChick…. LV Landlord is a single mom
I shouldn’t “retaliate” because it just lowers me to levels that I complain about. But Texaschick , rather than add to a rational, reasonable discussion, seems to prefer to spew out venemous (sp?) hateful ridiculous remarks that in no way advance the discussion.
Kind-of reminds me of fingernails on a chalkboard when I read her hate-filled posts. I guess that I somehow miss the point.
Here is what we know about txchick57:
Used to be a lawyer working with the bankruptcy court, has been renting for 13 years, stays at home and invests for a living… and…drum roll… seems awfully angry at just about everything, and, everyone in the world.
I agree with you va_investor, her posts just make me want to vomit. I’ve actually learned to cope with her by keeping a tally for how many times she is negative(432) vs positive(7).
I keep waiting for her humanity to rally in a late quarter comeback but I’m afraid all is lost. Perhaps if she just had a do over in life it would all be better. I’ll go ahead a increase the tally to (433) after she reads this.
Thanks for the post. I thought that it was just me; somehow not “getting it”. She is one very angry person.
“The danger, of course, is that Tahmassebian could be left holding the bag.”
Actually, the real bag holders are likely to be people who have invested in funds that hold paper backed by mortgages made to speculators like Tahmassebian. The fund managers probably think they have the risk under control via hedging with derivatives. I have a hunch those managers are about to find out the hard way what the term systemic failure means.
The scary thing is that few people know that they own garbage paper like that through pension funds, etc.
This is what scares me the most to . I keep thinking the PMI companies are going to take most of the lost .
sorry loss
or lost…
I don’t think that PMI will take too big of a hit.
The more reckless get piggyback loans 80/20 to avoid PMI.
It is cheaper to piggyback than to PMI.
not exactly when those piggybacks which are arms go up people pay more.
They will close their doors and go bankrupt just like every good insurance company does when hit by a lot of claims at once.
Insurance companies are very good at protecting for individual incidents… they cannot protect against systemic failures.
I think anyone who cares about their retirement owes it to themselves to learn what it is in their retirement accounts, mutual funds, etc., self direct if possible and stay away from mutual funds if at all possible. I know that everyone can’t do that and can’t be bothered learning how to monitor their “investments,” but it is going to be more and more important that they do.
I work for a fortune 50 company and my 401k has 15 or so investment funds. 3 are labeled stable value/bond funds. In the prospectus fine print there’s a reference to MBS. They don’t disclose how much of it or what the nature of these MBS are, except by inference — They have a low yield. That “might” indicate they don’t hold sub-prime - my hope. But even if some small fraction of the fraction of these funds is sub-prime MBS, they don’t go to ZERO like XYZ.com did back in 2000. They will lose some fraction of their loan amount but they will sell the note (provided they’re 1sts) — 2nds, HELOCs… all go to ZERO. But those debtors that hang in there will be paying high interest on their loans, making up some of the balance.
If the housing market crashes it’s going to be tough to find a place to hide in the limited 401k world as there will be more than a ripple through the equities markets…
They won’t let you self direct? A lot of companies will. Then you can just use a simple Vanguard S&P 500 fund and time the market using a chart. Anyone can do that if they’re willing to spend a bit of time learning.
Sure. It’s all self directed into 15 or 16 fund choices and company stock. This is how it works for all fortune500 companies (I’m pretty sure because I’ve worked for 3 and they were all essentially the same), they have a payroll deduction you divide among a group of funds, percentage goes into the choices that look good, including a foreign fund. I get a 6% Salary $-for-$ match which also follows my choices. I could pick only 1 if I want and have everything go there. I don’t know where to put it if there’s a collapse because they’ll all drop - Foreign “maybe” a little less?
And I have a S&P fund, a Tech fund (NAS1000)… choices like that. I am fairly well spead out with only a total of 15% in the various bond/stable value funds. These are Citistreet managed funds…
I work for a Fortune 100 company. We have a PCRA which stands for Personal Choice Retirement Account. I didn’t even know about it until I’d been there a year and heard about it from a friend. It is ENTIRELY self-directed, though I cannot do “safe” options like in my IRA accounts (buy options/sell covered calls).
I’ve had it in GLD for awhile, though will be getting out once they stop trying to defend the dollar completely.
>use a simple Vanguard S&P 500 fund and time the
>market using a chart
TxC, are you a tech. investor (technical analysis vs. fundamental analysis)?
>if they’re willing to spend a bit of time learning
Any good links or books to start out? I’m always interested in learning new techniques.
feep, that’s interesting. So, how does this work? You open an account at some online brokerage and give them the deposit info, or they supply an account in your name and say have at it?
It was complicated because of course they want you choosing their shitty funds. I had to call the broker they associate with manually (can only use that broker — not my normal one) because there is no simple online method to open the account. Then you have to go back and forth a couple times to link them, and you must transfer the money manually every couple months as it accumulates in the IRA.
Here’s thebest part: Jason Mitchell … lying in wait for distressed investors tied to adjustable mortgages and multiple properties to dump homes for cheap. And when that happens? “I’ll pick up anywhere from two to three a month,” he says. “I’ll get in full-force.”
That’s not the way it works. They owe 90% of purchase price. They can’t sell for less. If they default it gets sold on the courthouse steps for the mortgage and taxes and penalties. Of course it won’t sell and goes back to the bank who takes another month for the loan committie to get to it and they authorize a market disposition and have their RE unit reappraise and list. Months and still no bargains. Waiting to pounce is years not weeks and remember once you’ve got your “kill” you won’t get enough rent and you’ll be 7-11% under from transaction costs coming and/or going and those taxes are due at closing as well. You’ll be swimming upstream until 2010. What do these idiots think? The individual house they are stalking is the only one sickened and weak? The whole freakin’ herd is going be starving together. The only thing worse than a formerly high growth area tract home is gonna be an urban rennasiance condo.
They are idiots. I have never seen such a large group of dumb money out loud. Even in the stock bubble.
What’s really going to be interesting is when these vultures discover they no longer qualify for the loans they need to do these deals. Then the reality hits. There’s not gonna be any speculators willing to use their own money for these deals. 2008 I’m gonna staple a great big “Q” on my forehead (for preQualified). Then I’m gonna walk into a few of these trainwrecks with wads of greenstuff. As for now there isn’t anyplace I follow that I would consider without at least a 50% decline but I am partial to bubble zones so YMMV.
I remember 1990 very well. I had cash from cashing out in SD in 1989 and even with cash, I was afraid to even try to get a mortgage. The process was way too intrusive for me. We have always paid cash for houses (I know that’s not realistic for most people) and I think I’ll continue that if I ever even buy another house. Renting is fine if you get the right house and right landlord. I’ve been lucky being able to rent places for 5-6 years at a stretch unti I want to move.
That’s pretty true right now. However, if the bubble really bursts, banking regulations will force them to dump it. There is a limit on how much banks can have tied up in repossed assets. In a good real estate market, they never hit the limit and can take their time disposing of their inventory at market price. In a bad real estate market, they’ll be forced to fire-sale it at a loss.
Excellent point. I was only talking about the “first wave” and why I said there would be bargains in 2008. I know this because that’s how I picked up my manse on the double cheap. Watched it slide and slide in the MLS. Last at $315k. Bank tried to dump at $272k. We got accepted at $242k and while in escrow got another $20k knocked off. This starting Dec 1993 and closing Jun 1995. The bank knocked the $20k rather than let the property show up on the books in the 3rd quarter, just like we planned. Gawd I was puttin’ the screws to ‘em.
I had the president of an S&L here in Dallas who would give me a list of what they were going to dump every month and he also offered to finance if I wanted any of it. They were one of our firm’s clients until they went under and were taken over by the FDIC. Following up, many of those properties eventually sold for half of what he offered me.
I only got rid of my RTC office copier a few years ago. [Cheap New Englander]. Banks only do one thing and not always very well. They just don’t understand assets. The worst properties will fall out first. The very best properties will be at the end of the cycle. Don’t you just love the change in tenor? Two months ago we were fending off people shouting about how stupid we were to have pronounced the bubble and now they hang on our words as we describe how it happened the last time and how it will play out this time.
I think it might be worse this time because despite the checks and balances put in place following the previous bust (via the Fed) the same things have happened this time, same crimes committed, only on a vastly wider scale with the added element of much wider participation from non-US citizens and other foreigners who can and will just vanish.
i am already seeing bk forclosures on zip realty in the antelope valley ca.in the 90s there were thousands of them.homes sold for 30% of previous highs.i bought a 4+2 with a pool for 52k.it was a fixer but today it would sell for 275k.it will go down to under a 100k in a few years.
Those who gambled on the regentrification boundary of inner cities (Washington DC) will find that crime can go up when the economy tanks in an exact reversal of the decrease in crime during the bubble runup which brought in the gentry…
You should see some of the VERY expensive places built in inner city Dallas in some REALLY bad areas. We’re talking crack houses a block away or in some cases, on the same street as a 600-700K house. Who buys these, I have no idea. If Rudekarl is reading, I’m talking about all that stuff on Junius, Bryan Street, in that Live Oak area that is just crawling with illegals and crime.
stucco - ouch! some people just don’t fit into gentrification zones. or should i say enterprise zones.
unless you’re chuck norris. he’s counted to infinity.
twice
Damn straight. He’s the only person who can count PAST infinity, too.
I see people here in Vancouver congratulating each other for buying $300-400k condos in areas where mutant junkies walk the streets and property crime is epidemic. Good luck.
I drove through DC last week and man, there are condos going up in some really bad neighborhoods. Streets strewn with trash, bums, liquor stores, delinquent teens, and badly deteriorating buildings. I can imagine the conversation: “Honey, great news! I bought a condo and we’re moving to the ghetto!”
touchdown cote -
glad the man’s on our team
COULD be left holding the bag? This guy is pond scum.
Great post Robert Cote.
If any readers on this blog think they are going to be able to swoop in for great deals in the next 12-18 months, the rest of us will be counting them among the bag-holders of this debacle. It’s gonna be a marathon, folks.
Did anyone see the ad being run by the NAR during the basketball tournament this weekend? It’s a montage of homebuyers and sellers expressing their deep appreciation for the “code of ethics” that they know they can count on from their Realtor. I think the word “ethics” is used 5 times in a 30-second spot. It’s never too soon to get your defense going I suppose.
This is going to be a giant mess because the bubble was so wide spread I believe . With interest rates due to go up more , the situation will become more dire , especially for flippers .
At least the flippers in Texas are doing well:
http://www.texaspinball.com/tourneys.htm
You are so funny , thanks for the laugh.
A new milestone…. and will some one please tell Zareh to go phuck himself… yes I’m pissed, I have many young working ‘doulble income no kids’ (DINKS) friends who can’t afford to buy house, a shitbox KB home at that, because of scum like this guy!
Phoenix 3/18/2006 39074
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Amen, PTP, amen — keep up the cause. LOVE those numbers!
So PHP,
Around this Saturady March 25 we’ll reach 40K. Seems like we should have some sort of little ceremony for that. Maybe a “Phoenix turns 40″ theme party. What will everyone be wearing? I’ll sporting matching stainless steel shoes and purse, accented by marble buttons.
DKNABNH, Fun Post! If I am invited, will probably come with a Granite Couner Top Hat. They are available in my locality with 0% down. After that I will Flip it for a profit
Yes, definitely keep the numers coming…
(but maybe weekly instead of monthly?)
Ok well THAT WAS COMPLETELY UNCLEAR!
I mean weekly number instead of daily numbers (shorter!)
Sorry..
>Phoenix 3/18/2006 39074
Damn, my spreadsheet was predicting 39034 on 3/18. Oh well.
I was predicting crossing 40K on 3/25, 45K on 4/30, and 50K on 6/4. However, the inventory should all be sold by then, due to the soon to start (2 more days!!!) soft and sweet, wise and wonderful, oooh, our mystical, magical Spring Buying Season!
ZERO inventory by June! Woohoo!
I hope you got the flyer indicating that Spring has been delayed due to rain.
Stay tuned for May. Which we will have numbers for in July.
Unfortunately by then the poorly selling fall season will only be two months away.
There is no rain in Phoenix, didn’t you know that? At least not this year. (I don’t count that one rainy day, where I am from we only have one sunny day each winter.)
The buyers during second half of 2005 won the award for being the biggest fools in this RE mania.
This is how bubbles bust. It starts at the fringes. Speculators have overindulged themselves in chasing the next O.C. in the past couple of years. They euphorically fantasized how Phoenix, Sacramental, and Las Vegas were going to be the next Southern California, and trampled over each other to load up as many properties as their compounded leveraged margin buying power allowed. Now the RE market is hitting an air pocket in exhaustion. They are in deep denial that the music has stopped, and that they are the actual biggest fools. There are concerns, but no panic just yet since many of their first homes have doubled and tripled in value in primary markets like Orange County and San Diego. Panic will take hold once those markets are depressed by heavy inventory pressure in the coming months. The home builders will be the catalyst for that hemorrhage. Builders like LEN who bought the old El Toro marine air station in Irvine for $649.5 million will be a major load on inventory in 2007 as the number of homes for sale on the market accumulates. LEN will easily under price the existing homeowners to move their inventory. Speculators will find out that the better time to sell is now, not this coming summer, fall, or winter, and definitely not 2007.
The current RE market condition is what we call exhaustion, not “seller/buyer stand-off” like the RE industry likes to paint it. The headline “Real Estate Bubble in Exhaustion” is too debilitating to their revenue to print. The only likely stand-off is between existing homeowners and the homebuilders. And we all know who will likely come out ahead in that stand-off.
I remember reading on the first day of 2000 on the front page of the biz section of the Dallas Morning Snooze about some people in Waco, Texas who just could not stand it any longer. They had seen “everyone” else making huge dollars buying dotcom stocks and they were liquidating their bond portfolios to buy Yahoo, JDSU and Microstrategy. OMG. I was holding significant inventory over that weekend and I dumped it in the first five minutes of the trading day on Jan 3 2000. The gap up lasted about 15 minutes and then the market tanked for a solid month before making its final high and then crashing in April as you all remember.
It’s really the same thing, isn’t it. The people who can least afford to make risky financial moves always do it right at the end when there are nothing left but crumbs and not many of them.
I have a friend who does NASD arbitrations. My god, if you could hear the stories of people who not only didn’t sell when the market started to go down . . . even the ones who did bought back in the summer of 2000 because the brokers were telling them it was “safe,” that prices had come down enough. That was a killer that blew out a lot of my trader friends and acquaintances.
This will be no different. I wince when I see all these masters of the universe who have escaped with some profit or who have renters in their crackerboxes thinking they will “swoop in” in ‘07 or ‘08 and buy up all these bargains. Who do they think they will flip them to even if they do get very low prices? The psychology will be then the same as it is toward the stock market now. No way! And the cycle continues . . .
You are soooo right. The great herd mentality continues.
The other factor which may or may not have been discussed here already is the “don’t want to pay taxes” mentality. That was a real problem getting people to sell stocks in which they had large profits in 1999 and 2000. I was managing some taxable stock accounts for partners at my former firm from 1996 - 2002 when I decided I didn’t want to do it anymore. In the early part of 2000, I got second hand stuff through the grapevine about some confab of telecom execs and high rollers where Robert Rubin supposedly told them it was time to cash in and get out of the market. I told the people whose money I was managing that I wanted to sell them out and put the money into treasuries. You would have thought I’d asked them to shoot their mothers. None of them would do it because they didn’t want to pay taxes. I remember one guy in particular who received free shares of Lucent (a LOT of them) from the AT&T spinoff (he had had thousands of shares of AT&T he had inherited). With a zero cost basis and the Lucent stock over $100/share I told him it was time to ring the register and take this incredible windfall he was basically given. He refused not wanting to pay taxes and all I will say is he STILL owns the stock. At 2.80 a share he still has a profit but not the profit he did have. I knew another person who would not sell their stock they received as an employee of a NDX technology company and instead sold 2002 leaps to avoid taking the big gains and paying taxes. Those leaps hedged about the first 5% of what eventually was a 90% drop in the stock price and she STILL owed taxes because of the option grants.
I think it’s possible that some housing inventory is being “held back” because the people who stil are deluding themselves that their properties will sell for more than they will want to avoid the capital gains taxes. That would only go for owner occupied of course but there are plenty of those. My friend in Florida is trying to hold out to July for that reason. I fear that with the rate properties in his complex are going on the market and not selling, he will lose far more in potential sale value than he would have paid in capital gains taxes if he sold now. So if we assume that a lot of the speculation went on in mid 2004 - mid 2005, that stuff will all come rolling onto the market midyear this year to midyear 2007, in addition to the stuff coming on becuase of resets.
My husband was one of those “don’t want to pay taxes” people. I clearly remember telling him that we needed to sell and his tax response. I said “70% of $1.00 is better than 0% of zero. Got me nowhere. Rode it all the way down - and I am the one who caught hell for “gambling” in the stock market.
And we wonder why the divorce rate in this country is at an all time high.
By Q4 07 & 08 there will likely be cash flow +ve properties provided long interest rates don’t get above 10%. Waiting longer, until the end of 08 will be when the hard luck stories have turned the entire psycholgy surrounding RE and the biggest discounts, where lenders have to clear their books of defaults in blocks to meet solvency guidelines.
Waiting until inventory levels start trending lower, 10% up, will likely mark the bottom or close to it…
That’s it, isn’t it? I mean if you can start cash-flow positive (or damn close — keeping ALL expenses in mind)… and can swing the loan… then do it!
And hold it for 8-10 years… and SELL!
Or just keep the rentals and let the tenants pay-off the mortgages. You can 1031 occassionaly to upgrade under-performing/headache properties.
You can even trade 3 rentals for a fabulous future retirement home. Rent it out for a year and convert it to personal use. No tax consequence. It is like free money and a great way to plan for your retirement home.
I’ll be a little picky. Cash flow +ve in a good area, keeping in mind the return on any downpayment, some fraction for vacancy, maint, taxes/ins…
You’re right, there is some effort involved. No free lunch.
Learned something here. Thank you for the insight…please share some more so that some of understand the timing and psychology aspect of investing.
I mean some of us
My favorite MSTR quote - the day it tanked, a long-time buyer asked at the Yahoo board - “when did they announce the 3-for-1 split”?
There is nothing funnier than reading the yahoo boards the day any stock gets taken apart. I still think the funniest one I ever saw was the ELN board a year ago when it fell apart overnight. It was a riot for months.
Hey, I made a lot of money on ELN! Bought when it fell, then sold recently at the peak.
>Sacramental
Thanks, you made water come out of my nose.
Twenty years from now the saying will be, “…and if you believe that, I’ve got some desert land in Nevada to sell you!”
With a McMansion on it :D.
I have a friend that lives in that neighborhood(not one of those $600k monstrosities) - he said you can expect to get your car broken into at least once a year if you park on the street. I wonder what will happen to that area if the economy takes a dive.
Wow! They’re lending to anyone these days!
http://www.careerbuilder.com/monk-e-mail/?mid=5363929
LOL! That was pretty funny.
AT&T actually made the text to voice conversion software I’m sure. Not like you care lol. I built something similar to that about 15+ years ago on an Amiga system. I even think I have a patent on that.
The patent deals with when character to text conversion is distributed over the web with the appearance that monkeys are talking. Time to file a lawsuit
txchick57…
I’ve been RIVETTED to this particular installment of Ben’s incredible blog due to your discussion with Housing Wizard and Robert Cote.
My God…the wealth of knowledge and history you people hold in your brains…
I can’t really comment, except to say…
…I BOW TO MY TEACHERS OF INTELLIGENT FINANCE AND REAL ESTATE.
Even that probably sounds infantile.
I gotta give credit where credit is due…
You guys are freakin’ amazing to read when you talk together.
It’s like some real estate roundtable on steroids with a methamphetamine chaser.
The knowledge you’ve unleashed in just this little thread has me on the floor, gasping for air.
Can you please keep going?
I’m learning a lot here- and I can’t say I’m absorbing it all, but I am trying hard to.
That particular discourse between the three of you reminds me of the first time I heard Mozart’s Requiem or TOOL’s Undertow album.
I have passion- that’s for damn sure.
But you guys- Christ- what EXPERIENCE you have!
I’m just gonna sit back and watch and get taught.
Wow.
(I feel like an idiot for being so loud.)
TEACH ME!
(I will shut up now)
Sorry, I forgot Trojan Horse and Tommy Trojan.
(Brain overload)
Are you done kissing a** :-D?
AH forgot the required “we’re not worthy, we’re not worthy!”
Back to re-Ned-ucation for you, AH…
Do you all agree that the bursting bubble will be more of a regional phenom that a national one? Las Vegas will bust b/c it was overbuilt, but NYC will hang on as long as say the stock market hangs on.
http://www.dcbubble.blogspot.com
Absolutely. I live in San Diego. The streets will run red.
Though it won’t be fun trying to get a loan anywhere.
While credit is still readily available, line up some serious credit lines if you don’t have cash. I have a stack of checkbooks (heloc’s on rentals) just waiting. The “real” deals will require cash.
Wow, how has Donald Trump managed to miss you?
Blah blah blah. Maybe Chapter 2 will be more interesting.
Sticks and stones….
Which markets are “safe?”
Bubble - are you asking me?
I think a lot of areas will fall in price. The good parts of places like NYC and LA probably will fall too, but you won’t see a ton of homes going on the market. This is because a lot of people in NYC and LA tend to keep their homes for 30+ years and didn’t buy during the bubble and won’t be forced to sell if prices drop.
I live in a neighborhood like this. Out of 9 homes, one was bought in 2003 (for 1/2 of what it would cost now), another was bought in the 1980s for less than 1/4 of what it would be now. The other seven have been owned for over 30 years and I know four of them were purchased in the 1940s. I’m not sure about the other three. Anyway, everyone is in awe of the housing bubble but not one person has been tempted to sell. The house that was sold in 2003 was sold because the couple that lived there got too old to take care of a house.
So, prices will fall but you won’t see a lot of houses going on the market. The only people who are really going to be hurting are the ones who bought in the last couple of years.
Claudita-
That is a great point. I agree with your assessment.
Your point raises an interesting issue about the long-term health of the market. My in-laws are in their 80’s. Everyone else on their block is very elderly, with the exception of some Chinese immigrants who are younger. But the average homeowner in the community has got to be in their late 50’s, early 60’s — you NEVER see 20-and 30-somethings there.
This is a very ordinary, actually not particularly nice, community. No one “trades up” to it; if they did, that would explain why the demographics skew to older folks.
Much of LA is like this. The interesting question is, what will happen once these homeowners drop dead? Becuase frankly, that day isn’t far off.
Persaonlly, I think it will gentrify, for two reasons. First, most of the communities that are CLOSE to LA have demographics like this; much older residents, nice houses that are not McMansions, etc.
To me, there are two ways this can play out. First, the neighborhood could attract young families. That makes sense, because once these homes go on the market, they will be affordable fixer-uppers, ideal starter homes. Second, it’s close to LA/jobs/etc and for this reason is inherently desirable. I’m not crazy about my in-laws’ house — it’s small, dumpy, and has little to recommend it — but I’d much, much rather live there, 30 minutes from work, than in a Fontana McMansion 2 hours, 30 minutes from work.
The other way this could go is that the neighborhood could become a slum. The same conditions which make it attractive to young families — i.e. cheap fixer-uppers — might also make it attractive to immigrants — i.e. illegals. Nothing against illegals, they are excellent people, but they are willing to live in crowded conditions and really put a strain on public infrastructure, so if they move into a middle class neighborhood it does tend to become a little bit less nice.
Anyway, would love to hear your thoughts on this issue.
We have some younger families around here. A few of them are younger families living with older family members.
Another thing — a lot of the owners around here picked up more than one house in the neighborhood so now they have a house to live in and rental house(s). Many of these rentals are renting for way-below market rate in exchange for other things like helping the homeowner do things and paying for the upkeep and maintenance on the rental. Tenants tend to stay a long time because of that. I know a lot of renters who have stayed put for 20+ years.
Ultimately though, I think housing prices are going to come down considerably because they aren’t in line with salaries. Without “easy credit” who could afford to live here? I can see a drop of 50% (putting house prices back to the 2003 level) happening easily. Beyond that, I just don’t know. Since house pricing is based on supply/demand — the thing that is missing in LA and NYC is supply. The good areas will still cost more than the rest of the country even if the bubble pops.
As far as the neighborhoods go, I’m in the Glendale/Burbank/Pasadena area. I think these towns will stay nice because they are not really part of LA and have separate police departments, etc.
nothing against illegals either, but if you go to a part of phoenix that is 90% illegals, you better not stop for gas…and when you read the AZ Republic or turn on the news, there is a shooting, raping, multiple victum slaying..etc. Just the other day, 67ave and Buckeye Road…shooting. It is just fact. Thats how it is. I don’t know why… My parents grew up poor in a NJ slum but they did not rape, rob or commit crimes… they had to work at the car wash for 50cent/hour… no teen pregnancy, no drugs, no switch blades… Why, why, why are so many poor folks letting their youths become wild animals is beyond me. BUT, back to housing, just 3 miles south(about the range of a stray 9mm bullet) of that shooting, are groves and groves KB, Pulte, Richmond American, Centex… and on and on FLIPPER infested homes, that were 160k just in the fall of 2004, and are now asking 300k. Just check it out on Zipreatly.
Invesors = Infestors
Buying the home within the last couple years is not a necessary condition to being screwed by the coming crash. People who have HELOCed themselves to the hilt essentially go upside down, too, right? Essentially they owe more than they’re worth.
Why would anyone with numerous houses that are paid off and have a low cost/low tax basis need a HELOC? If they needed money, they could have sold one of the houses. In areas with a lot of older homeowners, I don’t think you are going to find many HELOCs. Most older people have an aversion to debt because they remember the Great Depression and some severe recessions.
I have to admit, it is riveting to watch how the old hat and commonly accepted status of the housing market on the blogs, s-l-o-w-l-y seeps into the mainstream media. The same thing on the weather blogs and peak oil blogs that I also read.
I do think this market will correct quickly. Remember that in 2000, we learned that people were more willing to trade in their 401ks than they traditionally had been. The internet and the pace of information made for a different dynamic, than the old days of quiet retirement allocations.
I believe you’re making a difference. The Deal-a-tors are getting caught in the open during this shooting spree. It’s these supposed “experts” are the ones that are just not getting it. Bit by bit, the public is learning the real deal on their own.
Reading the blog, commented a few times. Just a contrarian view, but based on my reading, but what if most nations around the world are printing money like the US (many to keep exporting to US at a loss) and RE prices are increasing around the world because currencies are tanking. That would explain the run-up in oil, gold, commodities. (the US gov CPI is a joke.) RE is a real asset (like gold), and even if the Chinese own many MBS, their own currency is a joke, and even foreclosing on US properties at a 30% loss, that would still leave them with an real asset instead of a paper note that losses value 10-15 % a year. You will not read anywhere that our own Gov is making our currency worthless. Example: The Fed has now refused to publish the increase in money supply starting this month.
They cannot lower interest rates in order to solve the problem. A single example is that while there is about 3 trillion in dollar backed securities running around the world, there is 12 trillion in mortgage debt. (CAVEAT: Pulled from memory!)
The debt far outweighs the existing cash. So simply lowering interest rates will not fix it.
Therefore they will have to actually “print” dollars. The translation is that they put a floor under MBS by stepping in and buying them. This would not happen unless it were precipitated by a deflationary crisis.
Therefore, first we will have deflation — but not for too long. Then, once our friend Tahmassebian above has been devastated and has no assets, we will have the hyper-inflation. Cannibalism and face-painting are optional.
Yes, inflation is coming. But we can’t get ahead of ourselves.
If the central banks of the world are inflating in unison then our M3 insanity isn’t going to lead investors to other currencies. The Fed is terrified of deflation and they have deflation the likes of which have only been seen by the PC business now creeping in to many more industries as IT standards emerge and Moore’s Law does its thing.
It looks like the problem with fighting deflation is the blind liquidity which the Fed can’t steer. So we get serial asset bubbles of increasing magnitude. It’s possible we’re reaching the point now where the bubbles are big enough to cause more than just misallocation of capital. The whole system is losing stability because deflation is accelerating while CBs have an inflation target.
I read the odd Austrian School Econ book and contrary to popular assumptions about the banking industry and deflation they’re not mutually exclusive. You could adjust the principal balance down to compensate for an inability to move rates below zero. Sounds crazy but there don’t appear to be any good alternatives.
Say you borrow $100,000 for a house. Wages are dropping 5% a year so it’s unlikely that you will ever be able to pay back the $100k. Of course the CPI is -8% so you feel 3% richer every year. The bank adjusts the principal so that at the end of the 30 years the $50,000 you’ve paid them will now buy two houses. You’re happy, the bank is happy.
Since when do banks ***ever*** offer to lower your principle balance? I get refi offers all the time in the mail even though I’m not a homedebtor, but I’ve never gotten an offer to reduce the principle.
Banks sure as hell didn’t lower people’s principle balances in the Great Depression. They just foreclosed on them if they didn’t pay.
I agree that this is happening to some extent. Foreign holders of US currency are having trouble finding enough places to stash their cash, thus easy credit. However, wages here have not kept up and when they (foreign holders) realize how much of their money has been lost to bad loans that easy credit will dry up. When this happens they will go back to buying T-Bills (or somewhere else). This is what the fed wants. They need lots of investment to keep the bloated U.S. government afloat. The result will be modertely higher mortgage rates. In the short term at least prices for houses must come down because many people cannot afford to hold the houses they have based on their salaries alone. Just a humble guess.
I spoke to my sister who lives in Manhattan today. She said the NY City real estate is starting to really slow down all of a sudden, she said the people she knows in RE in Manhattan say it is really starting to die there.
Hmmm, maybe I should contact this guy and use his decision to sell as the indicator that the market will rise.
May not be his decision to sell.
people aren’t getting the reduced thing.
found a $45.00 reduction and a $100.00 reduction in valencia.
phuck is gonna be pissed
with amateurs like these flippers, it’s going to get ugly. with some inventory rises, it already is ugly.
And now, courtesy of the Los Angeles Times, we bring you one from our “creatively gaming the system” files:
For Home Loan Broker, Troubles Come With Creative Refinancing
Park Place Funding gives borrowers a cut of bounties for high-rate mortgages. For a while, everyone was happy.
http://tinyurl.com/pxv7p
“One way lenders make money is by making loans at high interest. They are so eager for these loans that they pay brokers a bounty for them.
Gallagher, who will turn 45 at the end of this month, decided to share this bounty with clients who had good credit and met other criteria.
The process works like this: A Park Place agent might explain to a homeowner that he qualifies for a 6% mortgage.
“Why don’t we make it 7%?” the agent will ask. “Sure, you’ll pay a little more each month, but we’ll give you more than enough cash to make up for it.”
For the Urells, the math was simple: Their monthly house payment rose to $2,022, about $250 more than they would have paid with the prevailing interest rate.
Over four months, therefore, they pay $1,000 more than they could have. But that deficit is outweighed by a $3,000 check per refinancing, the Urells’ share of the lender’s bounty. Park Place pays all the fees too. This lucrative transaction can be repeated every four months.
…
National City became Park Place’s favorite mortgage supplier because it paid the richest rebate…
Like most lenders, National City doesn’t keep all the loans it makes. The Park Place loans were sold to the Federal Home Loan Mortgage Corp., the mammoth government-chartered lending institution known as Freddie Mac.
Freddie didn’t keep the loans either. It repackaged them into investment pools.
And here is where it all fell apart. One investor, Gallagher said he was told, bought an investment pool with an unusually large number of Park Place loans in it.
This investor apparently thought he was going to get nice, fat interest payments for at least a couple of years, courtesy of a bunch of foolish Southern California homeowners who were inexplicably paying more than they should have.
Instead, the investor got a surprise. The homeowners refinanced, and the investor’s rich yield disappeared almost instantly. He complained, which started a chain of accusations and recriminations.”
Excellent article. I think a lot of these schemes will be discovered in the coming years.
Hmmmm, I thought prepayment penalties were stiff on these refis to prevent this very thing from happening?
These were Freddie Mac conforming mortgage loans. They don’t have pre-payment penalties. What this broker did is refinance 1% over the par rate, get paid about 4% premium, shared that with the borrower some of the profit. Then a month or two down later, refinance them at market rate. The entities that own MBS bonds will be the ones that lose in this transaction. I don’t think the borrower makes out that great either, they will be paying two sets of closing costs. It will take quite a while before they repay that wasted principal.
Watch out. This type of stuff was happening in the late 80’s early 90’s. Back when you needed a downpayment, a couple of guys came up with an idea for a pool of investor $ to purchase discounted seller take-back second mortgages.
APR was to be 12-15%. Well, the RE market tanked and foreclosures wiped-out these seconds and the investors lost everything. We had received a “special invitation” to participate in this wonderful opportunity. Needless to say, we passed.
dave has a good point. Then there’s the yield curve was has been on and off inverted in the US, the UK (IIRC) & Australia. The Fed said the curve mattered in some reports the past few years, but now in speeches, they say it doesn’t, unless it returns to “normal.” Isn’t the housing bubble just a symptom of a larger problem: rampant monetary creation (including credit). I am now getting at least one, sometimes 2 credit offers in the mail. One was for an unsecured loan, 7.99%, 5 years - of 45% of my income. I didn’t bite, then I got a new offer from the same mega-bank, for 60% of my income. Then, one of my credit cards just tripled my credit. Then there’s the rapid turn-over in new small businesses here- it’s incredible. Every months, storefronts have a new restaurant. Govt here is building new condos everywhere, with generous tax giveaways, $400k+ in slummy areas, “hoping” to spur development. If they really want to stop this foolishness, interest rates must go up much higher than Wall Street thinks. The housing bubble is just one aspect of mania, and I live in the rust-belt.
dave - It is bizarre the Fed is not going to publish M3 anymore. They say they don’t need it, it costs too much money… It’s funny, cause it’s the one number that has been on a tear … Look at the stock market trajectory, that started in 1994-95, it moves up up up just like M3 did (around the time of the big bond bust).
I remember reading that Fortune article and telling my wife that its publishing was strong evidence that the market had peaked. When an investing trend gets big enough to warrant special issues in mainstream magazines that’s a pretty good sign that things have peaked. The same thing happened with dot.com stocks…. Time publishes a special “new economy” issue, then a few months later things tank.
The funny thing about the “investors” in this Fortune article is they have basically no fear of loss. They’re leveraged to the gills with no or very small down payments, losing thousands of dollars every single month and yet they’re absolutely convinced that they’ll be OK no matter what. There is just no sense at all of risk. Weird. I guess that’s what defines a bubble.
Well, look at the age of the person profiled and description of his dress, bling bling, two cell phones, etc. I’m sure the author described those details for a reason. People like that don’t know the meaning of hard work but they will soon when forced to do it to pay back the money they owe when it all goes bust. As is well chronicled, the people who really know what they are doing are long gone from residential real estate speculating and nothing is left but the people who are bluffing to cover up their fear, the bullshitters (some here) and the truly clueless. A truly ragtag bunch to try and hold up this giant ponzi scheme.
Nice to hear advice from someone who has not bought in 13 years and whose only offer was last year at the absolute peak in the most overpriced market in the nation (Naples). I really think I should start taking notes - don’t want to miss any of your vast wisdom and experience.
You are clueless. A poster child for this bubble. What can I say
One of us is clueless. I’ll stand by my above comments.
va_investor:
Go back to the “Touched By An Angel” fanboard. Reckless specuvestors have exiled young families from the major cities, and the resultant havoc on the American economy is likely to be the stuff of legends, and you want everyone to talk like we’re on a Disney cruise. Seriously — STFU.
Very insightful and mature. Have your mother wash your mouth out with soap. They still did that when I was in grade school. These new age methods really aren’t working (i.e. time-out).
Troll.
Oh. Now you’ve really hurt my feelings.